Modeling Financial Time Series Based on a Market Microstructure Model with Leverage Effect
Joint Authors
Source
Discrete Dynamics in Nature and Society
Issue
Vol. 2016, Issue 2016 (31 Dec. 2016), pp.1-15, 15 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2016-02-21
Country of Publication
Egypt
No. of Pages
15
Main Subjects
Abstract EN
The basic market microstructure model specifies that the price/return innovation and the volatility innovation are independent Gaussian white noise processes.
However, the financial leverage effect has been found to be statistically significant in many financial time series.
In this paper, a novel market microstructure model with leverage effects is proposed.
The model specification assumed a negative correlation in the errors between the price/return innovation and the volatility innovation.
With the new representations, a theoretical explanation of leverage effect is provided.
Simulated data and daily stock market indices (Shanghai composite index, Shenzhen component index, and Standard and Poor’s 500 Composite index) via Bayesian Markov Chain Monte Carlo (MCMC) method are used to estimate the leverage market microstructure model.
The results verify the effectiveness of the model and its estimation approach proposed in the paper and also indicate that the stock markets have strong leverage effects.
Compared with the classical leverage stochastic volatility (SV) model in terms of DIC (Deviance Information Criterion), the leverage market microstructure model fits the data better.
American Psychological Association (APA)
Xi, Yanhui& Peng, Hui& Qin, Yemei. 2016. Modeling Financial Time Series Based on a Market Microstructure Model with Leverage Effect. Discrete Dynamics in Nature and Society،Vol. 2016, no. 2016, pp.1-15.
https://search.emarefa.net/detail/BIM-1103332
Modern Language Association (MLA)
Xi, Yanhui…[et al.]. Modeling Financial Time Series Based on a Market Microstructure Model with Leverage Effect. Discrete Dynamics in Nature and Society No. 2016 (2016), pp.1-15.
https://search.emarefa.net/detail/BIM-1103332
American Medical Association (AMA)
Xi, Yanhui& Peng, Hui& Qin, Yemei. Modeling Financial Time Series Based on a Market Microstructure Model with Leverage Effect. Discrete Dynamics in Nature and Society. 2016. Vol. 2016, no. 2016, pp.1-15.
https://search.emarefa.net/detail/BIM-1103332
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1103332